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The increase in FDI limit in the insurance sector may attract Rs 30,000 crore that the industry requires over the next five years, Insurance Regulatory and Development Authority (IRDA) has said.

A day after the Centre announced its decision to allow up to 49 per cent Foreign Direct Investment (FDI) in insurance, Irda Chairman J Hari Narayan said the move was essential as inflows are necessary for the sector to grow at 11 to 12 per cent.

"It (the FDI) will give boost to the insurance sector. And it is required any way. Otherwise, we don't have required capital for the insurance sector," Hari Narayan said.

"If the insurance sector has to double then it would require at least Rs 30, 000 crore (in the next five years)," he added.

Carrying forward the big-ticket reforms agenda, the government yesterday decided to move ahead with its proposal to hike FDI ceiling in the insurance sector to 49 per cent, from 26 per cent at present.

The decision was taken by the Union Cabinet, headed by Prime Minister Manmohan Singh.

The government also gave the green signal to foreign investment in pension funds, saying the FDI limit could go up 49 per cent in line with cap in the insurance sector.

According to Irda, the insurance sector constitutes around 4.5 per cent to the GDP. Last year, the total premium collected was at Rs 2.83 lakh crore.

With the increase in the FDI limit, the percentage of contribution from insurance sector to the GDP may also go up, Hari Narayan said.

"This move will increase insurance sector share in the GDP also. If the GDP also raises then the percentage may remain marginally high," he said.

The premium income of the general insurance industry, comprising 21 private and four public sector insurers, stood at Rs 27,942 crore in the first five months of the current fiscal. It was 18 per cent higher than Rs 23,748 crore in the corresponding period in 2011-12.

However, the premium income of life-insurance industry declined by 15 per cent to Rs 34,358 crore in the first five months of the current fiscal, compared to Rs 40,654 crore in the same period last year.